TAX ON PROFIT ONLY?

TAX ON PROFIT ONLY?

In layman’s terms, the general rule is that taxpayers who carry on a trade only pay tax on “profit” (taxpayers registered for turnover tax being one obvious exception to this rule) and not on all amounts received by or accrued to the taxpayer (or “gross income”).  Situations however arise from time to time where a taxpayer may be faced with paying tax on gross income as opposed to “profit”. An example of this is where a taxpayer receives an amount in advance from a client.   Where a taxpayer receives an amount in advance from a client, the taxpayer will typically...

CLAIMING VAT BEFORE VAT REGISTERED

CLAIMING VAT BEFORE VAT REGISTERED

It is trite that only a registered VAT vendor is entitled to an input tax credit, provided all requirements for an input tax credit has been satisfied by that vendor. But what is the position where goods have been acquired before VAT registration and VAT was paid at the time – can the VAT on these goods be claimed after the taxpayer becomes a registered vendor? The answer to this question lies in what is generally termed a “change in use adjustment”.  The VAT Act allows a taxpayer to claim an input tax credit where VAT was paid by that...

CONVERTING FROM PUBLIC TO PRIVATE COMPANY – TAX ISSUES

CONVERTING FROM PUBLIC TO PRIVATE COMPANY – TAX ISSUES

Unlisted public companies may want to convert from public to private companies for various reasons. Often times it is the free transferability of shares that cause a concern where there is disagreement at shareholder level and the risk of having a third party introduced as shareholder becomes high.   Where such a conversion is indeed pursued, the question that always comes up from a tax perspective is what the tax consequences are for the shareholders. This question originates from the very wide definition of “disposal” in the Eighth Schedule to the Act. According to that definition, any “variation” of rights constitute...

LEASEHOLD IMPROVEMENTS – TAX DEDUCTION

LEASEHOLD IMPROVEMENTS – TAX DEDUCTION

Taxpayers who rent their business premises often erect improvements to the premises and the cost of this can be quite substantial. A tax benefit in the form a deduction for such costs assists in alleviating the burden placed on a business. In this article, we investigate some of the requirements for claiming a deduction for leasehold improvements in terms of the so called leasehold improvement allowance. Improvements used in the production of income/income is derived therefrom The improvements must be used to generate income or income must be derived therefrom. A typical example of where improvements are used in the...

ADVANCE TAX RULINGS, TAX OPINIONS AND NON-BINDING PRIVATE TAX OPINIONS

ADVANCE TAX RULINGS, TAX OPINIONS AND NON-BINDING PRIVATE TAX OPINIONS

It has been said that some of the only absolute certainties in life are death and taxes. While this is indisputably true for death, one might fairly ask if it is time for this expression to be revisited insofar as tax is involved. Tax law is tremendously complex and taxpayers often find themselves overwhelmed by the lack of clarity about how a transaction will be taxed or even taxed at all. Very little about tax law is black or white. Most provisions and transactions fall into what can be termed a “grey area” where the issues are open to interpretation....

ONUS OF PROOF, VAT AND INPUT TAX

ONUS OF PROOF, VAT AND INPUT TAX

A trend has emerged recently with SARS relying more heavily on the onus of proof provisions (Section 102 of the Tax Administration Act, No. 28 of 2011, (“the TAA”)) to raise assessments on taxpayers, especially to disallow input tax credits for VAT purposes. While it is indeed well within SARS’ power to rely on section 102 of the TAA to raise assessments, it is important to understand the extent of this onus. This will allow taxpayers to identify where SARS are over extending themselves. Section 102 of the TAA sets out the onus of proof resting on a taxpayer. Insofar...

TRANSPORT SERVICES TO EMPLOYEES – IT IS NOT TAXABLE

TRANSPORT SERVICES TO EMPLOYEES – IT IS NOT TAXABLE

On 22 March 2017 SARS issued Binding General Ruling 42 (BGR42) which deals with the question of whether transport services provided by an employer to his employees constitute a taxable fringe benefit. BGR42 follows Binding Private Ruling 262 (BPR262) where a similar question was placed before SARS for a private ruling. In BPR158, SARS ruled that transport services paid for the by the employer to convey employees from a public transport interchange or a central collection point within a residential area to the employees’ place of work did not constitute a taxable fringe benefit. Private rulings issued by SARS are...

A MESSAGE FROM THE SCA:  TAX LAW IS UNFAIR, DEAL WITH IT!

A MESSAGE FROM THE SCA: TAX LAW IS UNFAIR, DEAL WITH IT!

In the case of New Adventure Shelf 122 v Commissioner: SARS (310/2016) [2017] ZASCA 29 (28 March 2017), the Supreme Court of Appeal had to deal with the question of whether South African tax law allows for the carry back of capital losses arising from cancellation of an agreement where that agreement was concluded in a prior year and assessed to tax but cancelled in a subsequent year. The court deals swiftly with the question and hands down a judgment in favor of SARS but not without leaving taxpayers with a very clear and unambiguous message at par 28: “In...

MORE TAX: VAT ON FUEL

MORE TAX: VAT ON FUEL

The declining economy has seen an increase in costs of pretty much everything and consumers are finding it hard to come by. There is, unfortunately, more bad news for consumers around the corner. Whilst at least not another reshuffle, the former Minister of Finance proposed in the 2017 National Budget to add VAT to the rising cost of fuel, in addition to the rising fuel levy, which, from 5 April 2017 is 30 cents per liter.  The proposal is intended to take effect in 2018/2019 fiscal year. Currently the price of fuel, as paid for by you and me, does...

GOING CONCERN SALES AND THE SELLER’S RISK

GOING CONCERN SALES AND THE SELLER’S RISK

The legislation governing the zero rate for going concern sales are set out in section 11(1)(e) of the Value-Added Tax Act, No. 89 of 1991 (“the VAT Act”). In addition, SARS in their Interpretation Note 31, prescribes the documents that seller must be in possession of to place reliance on the zero rate for the sale of a going concern. All too often we have seen sale agreements where assets are ostensibly sold as a going concern and parties incorrectly rely on the zero rate or do not have the required supporting documents. The question then always is, what are...